Hi Vance, RE: "If a company reprices options, that would necessitate a charge to earnings. Intel has never taken such a charge."
I'm curious why not reprice? What would be the estimated charge?
I imagine it would be a nightmare to reprice for a large company due to different annual grant prices?
But if issuing additional options to make up for underwater options is a dilutive event, then what's worse for an investor: dilution or a repricing charge? (Why would a repricing be a charge to earnings? I thought options weren't a charge? Or, is it only a repricing that is a charge to earnings? If so, why?)
Or, is the reason why repricings aren't done, related to grant dates? I've never been involved in a repricing - so do grant dates stay the same? If so, then I could see why repricing would be a huge risk to a company - it wouldn't reward for staying. (You want to create a reward that's valid if people stay, which would instead mean issuing options.)
I believe Intel's comp plan is quite competitive on the market for an employee that stays in order to realize gain, so my questions aren't attacking it, but instead simply trying to understand the financial side of their decision.
I can see why Intel had to issue new options: to avoid a scenario where someone gets essentially a reset of their options at another firm. So, the new options avoid that and probably minimizes employees from running off to one of Intel's customers for funding, and when taken with underwater options, looking at the press release it would obviously have a huge potential for gain yet the risk would be lower than at a startup for an employee that stays.
Probably lowers the cost spent on future competitive threats.
Regards,
Amy J |
